Donating This Year? How To Calculate the Value of Non-Cash Charitable Contributions?
Many taxpayers give to charity – but most don’t simply sign on the dotted line of a personal check. Donations come in forms of clothes, cans, electronics, and more. So how do you value these items for proper deduction? Read below to make sure your donations are giving back.
Fair Market Value
The most general rule is, items must be priced at a fair market value. What does this mean exactly? Not too high, and not too low. A price that someone would be willing to pay, and the seller would be willing to sell it for. The way to determine a fair market value would be to do some research – you don’t need an appraisal. Browse resale website like Ebay and Amazon, and see what your particular item is selling for. You can also consult an expert that is apart of the industry the donated good belongs to. It’s important to determine the fair market value at the time of donation so it’s important to do your research right after you complete the transaction. If you’re still unsure, consult IRS Publication 561 on the IRS website.
Clothing and Household Items
Clothing is by far the most common item among donations. Due to abuses of this tax deduction, however, the IRS has tightened the rules. Clothing must be in good or better condition for reuse. Although the IRS does not specifically define what good use is, some nonprofits now have guidelines. Generally speaking, you cannot donate items that are torn, dirty, or broken – as Goodwill puts it “if you wouldn’t give it to a friend, don’t donate it.” There is an exception, however; for items that are valued at $500 or more (you should get an appraiser for these items), the item does not have to be in great condition. If you have any doubt, it’s a good idea to consult the guidelines of Goodwill or the Salvation Army, even if you are not donating to these charities.
Property and Cars
Donating a car used to be simple – but like clothes, the deductions were extremely inflated. Since 2005, taxpayers are required to deduct the resale price of the car if it is valued at over $500. This also applies to SUVs, RVs, boats, and other motor vehicles.
There are a few exceptions. If the value of the car is $500 or less, you may take the fair market value price as the deduction. Also, if the charity vastly improves the car materially and/or mechanically, you may take the fair market value price at the time of donation. Lastly, if the vehicle is given or sold severely discounted directly to a needy person and not at an auction. There are also very specific reporting requirements depending on the value of the car, to be found on the IRS website.
For property donations of $5,000 or more, you must obtain a formal appraisal from a qualified appraiser.
Ready to deduct your donations? Make sure you fill out Form 8283 (and others that may apply; most specifically to high-value cars and property) and consult a tax professional.